A year ago, hedge fund manager Philip Falcone's LightSquared offered the Federal Communications Commission a huge opportunity to satisfy some of its most lofty wireless broadband goals. Today, the company is facing possible bankruptcy and only the slimmest chance of actually building its network, leaving policy makers in Washington focusing on alternatives.

Earlier this week, Falcone, whose hedge fund Harbinger Capital is the largest stakeholder in LightSquared, told Reuters that bankruptcy protection is one of several options he is considering as he tries to keep the company alive. LightSquared, which has been battling the GPS industry over claims that its network interferes with aviation and navigation systems, lost about $427 million in the first nine months of 2011.

The company has vowed to fight on, even if that means taking the FCC to court to win approval for its network. But it looks like more than ever, LightSquared is hanging on by only a thread of hope.

Though it hasn't said so publicly, FCC officials already consider the LightSquared deal dead. And the agency is now focusing on other avenues for achieving its goals of freeing up 500MHz of wireless spectrum by 2020 and encouraging more competition in the market.

Top priorities on the agency's list include changing rules so that Dish Network, which also wants to use satellite spectrum to build a wireless broadband network, can use its spectrum for terrestrial-only service. The satellite TV provider had sought a waiver similar to one that the FCC had granted LightSquared last year. But the agency, which sees less opportunity for interference in the spectrum band that Dish controls, decided to change the rules for Dish instead of simply making an exception.

The agency is also working on developing a plan for incentive auctions, which were authorized as part of the Payroll Tax Cut bill that passed Congress in February. These incentive auctions will be composed of spectrum that TV broadcasters will voluntarily give up in exchange for a cut of revenue from the auctions. The auctions are expected to bring in billions of dollars in revenue for the government. And the FCC has already initiated a task force that is exploring how best to set up the auctions.

The agency is also currently evaluating the largest transfer of wireless licenses outside of an acquisition. Verizon Communications announced late last year that it will buy 20MHz of unused wireless spectrum from cable companies for $3.6 billion. The FCC is currently evaluating whether the transfer of these licenses is in the best interest of the public, given that Verizon Wireless is already the largest wireless operator in the U.S.

The FCC is also looking at ways to work with government agencies to free up more wireless spectrum for commercial use. The NTIA recently issued a report outlining a broad plan for relocating and proposing some network sharing among government and commercial entities.

In general, the FCC and the wireless industry group CTIA support the NTIA's efforts, but they have also said they would like to see the government do more to free up spectrum more quickly. The plan outlined by NTIA could take more than a decade to accomplish, and it may prove to be too expensive to even attempt.

Meanwhile, the FCC is falling short of goals it set for itself in freeing up additional spectrum in its 2010 National Broadband Plan. LightSquared's network could have helped contribute to its overall goals of freeing up more spectrum, reaching rural Americans with affordable broadband, and encouraging competition. But now it looks like the agency , which had once been enthusiastic supporters of LightSquared's efforts, has given up considering it as part of its overall solution.

While bankruptcy protection may keep LightSquared's creditors from seizing much needed capital and may help to keep the company afloat a little while longer, without the support of the FCC, the company seems doomed to failure. In that case, bankruptcy may not keep the company alive so much as give investors time to come up with another possible exit strategy.

About the author

Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie.
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